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UK recovery slowing

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The economy showed signs of slowing in the third quarter of the year, according to a new study.

The latest quarterly survey from the British Chambers of Commerce (BCC), which takes in almost 5,000 firms from across the country, found that the economy was still growing but at a slower rate than that recorded in the second quarter of the year.

While the manufacturing sector stuttered, it nevertheless produced some positive aspects, the BCC said.

But the services sector turned in a weaker performance than manufacturing.

In manufacturing, the turnover confidence balance rose seven points to +49 per cent, the strongest result since the third quarter of 2007. However, manufacturers’ expectations on the profits likely to be delivered by that turnover fell by three points to +23 per cent.

In the service sector, the domestic orders balance fell nine points to -4 per cent, dropping into negative territory after being positive in the second quarter.

The BCC went on to point out that the service domestic balances, though much weaker than those for manufacturing, were still better than during the recession.

David Frost, the BCC’s director general, commented: “Overall, these results are disappointing, particularly for the service sector – although they did show that manufacturing was significantly stronger in the third quarter.

“Businesses accept the government’s austerity measures. But now it’s time to shift the national debate from cuts to what needs to be done to grow the UK economy. The private sector will do the heavy lifting – but the government must play its part by supporting capital investment in crucial infrastructure projects.”

David Kern, chief economist at the BCC, added that the dismal performance of the service sector is particularly disturbing, since it has happened even before VAT is due to rise to 20 per cent, and before the full impact of the tough deficit-cutting measures take effect.

Mr Kern, though, counseled against overstating the gloom: “Growth remains in positive territory, and a new recession can be avoided. But the UK will face huge challenges over the year ahead. Risks of a setback are likely to remain serious for a considerable time, which is why it is essential for interest rates to be kept at very low levels for an extended period.

“But this is not enough. The MPC should seriously consider increasing the quantitative easing programme to £250 billion before the end of 2010, to enhance the economy’s ability to cope. Reducing threats of a double-dip recession must be the main policy priority.”